The FDR Framework is the backbone for a 21st century financial system. Under this framework, governments ensure that every market participant has access to all the useful, relevant information in an appropriate, timely manner. Market participants have an incentive to analyze this data because they are responsible for all gains and losses.

Wednesday, May 8, 2013

Health of Spain's banking system in doubt as banks restructure $274 billion in loans

Bloomberg reports that in addition to the $50+ billion of bad debt Spanish banks sold to the taxpayer backed bad bank, Spain's banks restructured an additional $274 billion in non-performing loans.

Naturally, the question is "did this address all the bad debt in the banking system?"

Of course, in the absence of ultra transparency under which the banks disclose their current global asset, liability and off-balance sheet exposure details, there is no way to know.

Spanish banks had 208.2 billion euros ($272.4 billion) of refinanced or restructured loans at the end of last year, a figure that analysts said could translate into further losses.

Twenty-four percent, or about 51 billion euros, of that relates to mortgages, 36 percent to non-real estate companies and 33 percent to property and construction, the Bank of Spain said in its financial stability report published today. The balance was in loans to households and government.

An economic slump in its sixth year is generating mounting defaults for Spanish lenders that in some cases refinanced or restructured more loans to avoid booking losses....

So the Spanish lenders have in fact hidden more problems. The question is how much have they hidden.

“In theory, there’s nothing necessarily wrong with refinancing,” said Daragh Quinn, a banks analyst at Nomura International in Madrid. “What matters is the quality of the refinancing and what is the level of re-default say 12 months down the line.”

The refinanced or restructured loans amount to about 14 percent of credit in Spain, the regulator said. Of the 208.2 billion euros, 42 percent are classed as normal by the banks, 37 percent as “doubtful” and 21 percent as “substandard,” or having some risk of turning bad.

“A number like this almost raises more questions than it answers in an economic situation like Spain’s,” said Nick Anderson, an analyst at Berenberg Bank in London. “It’s a big number, and I don’t think it’s going to let people sleep easier at night about the health of the banking system.”...

Even so, the situation is different than in 2012 because of the loan-loss charges taken by banks and transfers of soured assets to a so-called bad bank, the regulator said.

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A blog on all things about Wall Street, global finance and any attempt to regulate it. In short, the future of banking and the global financial system.

This blog will be used to discuss and debate issues not just for specialists, but for anyone who cares about creating good policies in these areas.

At the heart of this blog is the FDR Framework which uses 21st century information technology to combine a philosophy of disclosure with the practice of caveat emptor (buyer beware).

Under the FDR Framework, governments are responsible for ensuring that all market participants have access to all the useful, relevant information in an appropriate, timely manner. Market participants have an incentive to use this data because under caveat emptor they are responsible for all gains and losses on their investments; in short, Trust but Verify.

This blog uses the FDR Framework to explain the cause of the financial crisis and to evaluate financial reforms like the ABS Data Warehouse.